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You May Really Need This Expensive Insurance

And "expensive" is a relative term.

Sales of long-term care (LTC) insurance policies have been falling, spurring MetLife(NYSE: MET) to abandon the business beginning in 2011. But while fewer people may be buying the policies, that doesn't mean fewer people need them.

One factor keeping many folks away is the cost. Long-term care insurance isn't cheap, but there's a good reason for its high price tag. You're likely to need it, which means insurers face a high probability that they'll have to shell out for it.

The bad newsEven minimal in-home help can cost $1,000 or more a month, according to the national association AHIP. Assisted-living facilities can eat up $2,000 or more per month. And even in relatively affordable areas, a nursing home can cost $50,000 or more per year. If the thought of such expenses makes you break out in a sweat, and you can afford LTC insurance, you're a candidate for it.

Better start saving your money: The already high cost of long-term care insurance is set to rise considerably. John Hancock, a division of Manulife Financial(NYSE: MFC), recently sought to raise its LTC premium rates by 40%, on average, atop double-digit increases for many customers in 2008. Genworth Financial(NYSE: GNW), meanwhile, wants to hike rates by 18% for many policyholders.

These companies are seeking increases because the policies are costing them more. Many policyholders have traditionally let their policies lapse in the past, but fewer are doing so lately, presumably because they find the protection more valuable. In addition, people are living longer, thereby costing the insurers more.

The good newsFortunately, there are ways to cut down on the cost and ways to optimize your policy. For starters, look into buying it while you're still relatively young. It costs far less for a fiftysomething individual than it does someone in their 60s or 70s, and some estimates show that each year you delay could tack around 8% onto your premium.

You can also get a lower rate by tweaking the terms of the policy you buy. For example, you might lower the cap on the claim period from five to three years. Most people who end up tapping their policies do so for less than three years. Most nursing home stays don't exceed three years, either. You can lower the cost by extending the waiting ("elimination") period before the policy starts paying, too.

When buying, look for a healthy insurer, and aim to include inflation adjustments. Some policies will give your doctor more decision-making power, too.

Don't let the need for long-term care for yourself or a loved one derail your retirement. If you can't afford a policy, you might still set aside separate savings for the purpose, just in case. Learn more about LTC insurance by reading up online or consulting a financial advisor, and see if it's right for you. There's a good chance it is.

Author

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter... Follow @SelenaMaranjian